STRENGTHS AND WEAKNESSES OF THE LATVIAN TAX SYSTEM

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STRENGTHS AND WEAKNESSES OF THE LATVIAN TAX SYSTEM

• Valentina Andrejeva
• State secretary
• Ministry of Finance
• Republic of Latvia

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Aims of the tax system in Latvia

• Fiscal aims ensuring the budget revenue
• Instrument for economic policy

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Taxes on Income

• Taxes on income united system
• any person deriving income in Latvia is taxable
  with personal income tax or corporate income tax
• the same income is never subjected to both the
  income taxes at the same time

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Taxes on Income

• Income tax laws have been formed according to the
  principle that
• the range of taxable persons and the tax base
  have to be wide
• the rate has to be comparatively low

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Taxes on Income
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Taxes on Income

• Advantage of personal income tax uniform tax
  rate
• Weakness very low exempt minimum

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Taxes on Income

• Generally accepted principles are gradually
  incorporated in tax laws
• traditional tax avoidance methods
• EU requirements
• taxation of dividends
• application of income taxes during enterprise
  reorganization

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Taxes on Income

• Tax conventions
• conventions with 44 countries have been
  initialled
• 30 conventions have been signed
• 26 conventions are applied

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Immovable Property Tax

• The aim of taxation of immovable property
• uniform tax rate of 1 percent
• uniform tax base the cadastral value of
  immovable property
• wide scope of payers - all persons that own
  immovable property in Latvia

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Transition period
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Immovable Property Tax

• The unsolved problem taxation of dwellings
• substantial increase of tax burden on individuals
• administrative problems of potential reliefs
• procedure for paying tax on apartment buildings

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Value Added Tax

• The latest EU requirements implemented
• abolishment of exemptions
• introducing the reduced rate (9)
• introducing the system of refunding tax to
  foreign legal entities

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Value Added Tax

• Weaknesses of VAT
• Problems arising from passing over from goods
  exemption to levying tax
• Administrative problems

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Excise Taxes

• Reforms of excise tax system in Latvia started in
  1997
• Legislation alignment with EU requirements as
  regards mineral oils, alcoholic beverages and
  tobacco products
• Reforms of excise tax system still in process
  until the 2010

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Excise Taxes

• The main EU requirements already introduced in
  Latvia
• System of excise goods warehouses
• Excise tax suspension arrangements
• Excise tax guarantee system

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Harmonisation of excise tax rates in Latvia

• Excise tax rates for alcoholic beverages already
  exceeds the minimum EU level
• Excise tax rates for mineral oils have to be
  increased before the accession to EU due to the
  growth of exchange rate of Euro
• Excise tax rates for cigarettes will be increased
  until the 2010 according to the transitional
  period granted by EU

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Plans to introduce EU tax system for cigarettes

• 1st July, 2003 introduction of combined tax
  rate (specific ad valorem)
• 1st July, 2003 introduction of equal rate for
  cigarettes with filter and without filter
• Until 1 January, 2010 gradual increase of tax
  rate in order to reach EU minimum rate level

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May You be overwhelmed with Joy this Holiday
Season!